Current Affairs



In the long run, growth is a function of changes in labour, capital and productivity. When all three increase, as they did in China for many years, growth rates are superlative. But they are all slowing now. China’s working-age population peaked in 2012. Investment also looks to have topped out (at 49% of GDP, a level few countries have ever seen). Finally, China’s technological gap with rich countries is narrower than in the past, implying that productivity growth will be lower, too.

Over 2½ decades, China’s economy averaged nearly 10 percent annual growth — and it continued to surge in recent years, as other developed economies stagnated. On a heavy diet of oil, coal and steel, China consumed more and more of the global pie.

In 2007, China’s economy grew by 14.2 percent, according to the IMF. In 2010, it slowed to 10.4 percent. This year, China’s leadership is shooting for “about 7 percent.” The slowdown is necessary as Beijing transitions from an export-oriented economy to a more sustainable consumption-oriented one.

Recently PMI Index show that China’s manufacturing index declined, actually dipped below 50. So the current reading of their index is 49.6. And so for that index–and if it’s above 50, it will indicate expansion of the manufacturing sector, and then if it’s below 50, it would indicate contraction of manufacturing sector. So the market concern is that it may suggest China’s manufacturing sector is not only slowing down, but moreover it’s contracting.

Real-estate sector is one of the most important sector of china, so much of the credit flowed to property developers. China’s inventory of unsold homes sits at a record high. The real-estate sector, which previously accounted for some 15% of economic growth, could face outright contraction. New property starts fell by nearly a fifth in the first two months of 2015, compared with the same period a year earlier.

Global Effects

China, already the world’s second largest economy, has become crucial for global trade over the past two decades. In 2000, China accounted for just 3 percent of the global goods trade. By 2014, that number had jumped to 10 percent. China became the world’s leading trading nation in 2013.

China’s downturn comes at an especially inconvenient moment for Saudi Arabia, Russia and Venezuela, countries that supply a healthy percentage of China’s imported oil. According to the latest figures from the Energy Information Administration (EIA), Saudi Arabia exports 14 percent of its oil to China; Russia sends 14 percent, and Venezuela 10 percent.

Commodity prices generally have been sliding since 2011, and commodity-exporting countries have felt the pain. In fact, the value that producers of oil, gas, metals, minerals and other commodities have lost just in the past year comes to about $2 trillion, the size of India’s entire economy.

Much of the slide is attributed to weakening global demand for basic resources and minerals. 86 percent of Australia’s exports to China are commodities-based—for Chile it’s 92 percent, 71 percent for Indonesia, 45 percent for Brazil and 86 percent for South Africa. China’s slowdown does not bode well for any major commodity exporters, but this group is particularly vulnerable.

Effects on India


  • Hard commodities have been hit in expectation of a Chinese slowdown. Copper is trading at a 6-year-low.
  • China is the world’s top copper consumer, accounting for 40% of global consumption.
  • Similarly, aluminium is trading at new lows and is already trading at prices below cost of production of many Chinese companies.
  • For India as a consumer, this is good news as the cost of constructing new infrastructure, especially smart cities, will come down.
  • Oil prices were already taking a beating, with global slowdown and a possible US-Iran deal, China only nudged the prices lower. For India, low oil prices helps in controlling its deficit and keeps inflation under check.


  • The Indian financial markets may remain under pressure and the rupee is likely to be volatile given the twin problems of the China stock market meltdown and the crisis in Greece.
  • Automobile exporters and manufacturers, especially Tata Motors will feel the pinch as China was its fastest growing market, especially for JLR, and the company was investing in the market to drive future growth. But auto-ancillary suppliers will be hit as China consumption falls.
  • India’s steel exports to china have declined.

If the Chinese officials do devalue their currency to push growth, world markets will be flooded with Chinese goods at low prices affecting exports of other countries including India.


China's declining growth is an opportunity for India to increase its exports. do u agree with this statement?

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